Monetary and Banking Compact
The Monetary and Banking Compact was a mechanism within Lovian - United States relations that provided an administrative and commercial framework to facilitate the use of US currency, and payment systems associated with it, by and within Lovia, prior to the promulgation and adoption of the Lovian dollar. The Compact had evolved largely within the private sector with little involvement of the respective governments, though the Federal Reserve Bank of San Francisco had kept an office at the American Legation on Embassy Row for many years, and at least one economist with the Lovian foreign service had typically been granted observer status to attend meetings of the Federal Reserve Board. In fact, the Compact was only ever officially documented at an agreement signed in San Clemente, California in 1987. Status before agreement Cheques written by Lovians in transactions with US entities had to carry a preprinted mention of which US bank would perform the settlement. Many Lovian financial institutions at the time (but not all) held correspondence accounts with the California Intercontinental Bank in San Diego, and those checks usually cleared within a week after being deposited. Customers of banks that had arrangements elsewhere, or that changed for one reason or another, frequently experienced misdirections and other delays in processing of as long as four months. During the time when travelers cheques were popular and American Express had unquestionable command of that market segment, use of USD denominated TCs between Lovia and the United States was accepted at face value. The plastic war The charge and credit card industry was another story. What was then known as the Noble City Bank of Commerce had early in the 1960s received a franchise contract license from American Express to issue and administer American Express Card accounts and transactions in Lovia, and was perfectly content to settle all charges on Lovian accounts signed for in the "USD zone" (at the time including Lovia, the United States, Panama, and a few other places) at face value. But when a competitor bank that obtained a similar arrangement from the Bank of America to issue Visa cards and process Visa transactions found that it was authorized to impose a surcharge on what were, legally, foreign transactions, said competitor decided, ultimatley to their ruin, to take advantage of it. As the ensuing battle raged and when the smoke cleared, American Express became and for some decades remained the overwhelming favorite plastic carried by Lovians and honored by Lovian businesses. As a result neither Visa, MasterCard, nor any other consumer payment system brand enjoyed much market penetration here until a just few years ago. How it worked In a nutshell, the use of a Lovian payment product to execute a transaction in the United States, or vice versa, was essentially treated as a domestic transaction at both ends. There was no surcharge to the consumer, and only the standard interchange fee to merchants and institutions, as only one currency was involved, and the Lovian and American mechanisms for acquiring, processing, collecting, and settling all types of plastic, PIN, signature, and paper transactions were fully compatible with each other and operated according to the same procedures and standards. An American or Lovian ship could even land an armored truck with a properly vetted armed crew at selected ports in the other's country, though this only ever occurred a few times. The Switchover to the Lovian Dollar During the "Blue Halloween" bank holiday of 2011 all bank accounts were temporarily taken offline, and the amount of every USD deposit balance and every outstanding USD debt was increased by 1/9th (this appeared as a "currency adjustment") for conversion to LVD. By royal decree, all charge accounts, mortgages, leases, airtime contracts, tax obligations, and other common debts owing at least a penny but otherwise in good standing were held to be "reportable as current" through the end of 2011. Lovian banks will still operate USD accounts for depositors who want this service; those who do are mainly people who frequently visit the States or have extensive business dealings there or elsewhere in the USD zone. Such accounts continue to be governed by the procedures underlying the Compact. Category:Economy Category:Banking Category:Foreign affairs